Following an improvement in trading conditions in 2021 due to robust economic drivers and resurgent consumer confidence and spending, businesses must once again navigate a volatile market.
Rising global inflation and sustained global supply chain constraints, coupled with negative growth in China, recession risks and rand depreciation due to multiple global factors abruptly ended the post-pandemic recovery.
The cost of doing business has risen due to increasing fuel and energy costs, load shedding and inflation-linked cost pressures. Global supply challenges also continue to affect costs and operating cycles.
In response, businesses are looking for funding solutions that can both sustain the business by creating supportive cash flow while unlocking agility and nimbleness to take hold of growth opportunities.
Mid-market businesses typically have limited cash reserves, especially those that operate in working capital-intensive sectors. These businesses traditionally reinvest profits to fund their operating cycle or to grow, as such requiring the right funding to remain resilient through volatility and support growth during more prosperous periods.
The mid-market business sector is vitally important to the economy. It is, therefore, incumbent on banking partners to find workable funding solutions throughout the working capital cycle to support this sector and enable it to contribute to economic growth.
The Covid-19 crisis and the prevailing market pressures created greater awareness about the funding lines available to businesses. Businesses that survived the pandemic understand the importance of a more liquid balance sheet and the value that an innovative and responsive banking partner can add during periods of volatility.
There is a greater appreciation of the need for agility and responsiveness in these dynamic market conditions. Accordingly, Investec has experienced a 33% increase in its business lending book, with utilisation of available funding lines surpassing pre-Covid levels.
This renewed focus on debt and the increased utilisation of revolving loan facilities for liquidity, instead of tapping into cash and capital reserves, points to a fundamental shift in how businesses view funding.
Business owners need banking partners that understand their business, their realities and their plans, and that can work with them to provide the right funding at the right time to support their ongoing business and growth strategies.
Expenditure within the information and communication technology sector supports this viewpoint, where the number of clients and value of lending deals concluded by Investec’s business lending division has almost doubled since March 2020. These support technology distribution, infrastructure, networking and data solutions.
In fact, demand for lending solutions remains strong in working capital-intensive sectors such as manufacturing, retail and wholesale, and suppliers to the mining sector, with this value chain having benefited from the recent commodity boom.
This trend points to the adaptation and response to global supply chain pressures on the availability and cost of goods.
In this regard, Investec business lending has experienced an over 14% increase in facility utilisation, compared with 2021, to fund the purchase of stock and bridge debtors’ days.
While meeting the need to hold additional stock to mitigate risks posed by supply chain constraints and the resultant longer lead times for order fulfilment, businesses are also using these funding lines to exploit market opportunities for increased and/or diversified supply. This is a shift from the more prominent utilisation profile that emerged during Covid, when relief measures enabled businesses to extend repayments on their existing facilities.
Basically, the “cash is king” approach has merged with “stock is king”, as both have become equally important for business agility. We have seen that businesses with the right stock on hand have gained market share amid the global supply crisis, while those with liquidity have been more responsive to opportunities and benefited from a stronger negotiation position.
Amid this dynamic, businesses require a financial partner that is attuned to their business and that can offer bespoke, fit-for-purpose lending solutions that balance liquidity risk with the opportunity to fund growth and expansion.
Through continuous performance monitoring, funders should pre-emptively recommend funding solutions that the business might need, sharing insights and experiences gained from working with a broad range of businesses and in related markets to help businesses achieve their strategic objectives.
In this way, the right funding partner serves as a business enabler, equipping South African companies with the means to be agile and nimble, by providing access to the right funding at the appropriate stages in their commercial cycle, which they can leverage to expand their reach, upgrade infrastructure, procure assets to generate more income or redeploy capital for growth.
Hazel Banach, Investec for Business, head of product